Oil Falls As U.S. Says Price Trigger Not Needed To Refill Reserves
Oil edged higher as the easing of some virus curbs in a major Chinese city and a pause in the dollar’s rally aided the demand outlook.
(Bloomberg) -- Oil fell after the US Department of Energy said its plan to restock emergency crude reserves doesn’t include a price trigger and that the deliveries likely won’t happen until after fiscal year 2023.
West Texas Intermediate futures dropped more than 4% to trade near $85 a barrel. Earlier this week prices rallied after Bloomberg News reported that administration officials have discussed refilling the Strategic Petroleum Reserve should crude dip below $80, suggesting a potential floor for prices.
“The White House sending mixed messages on the strategic reserve has pushed this market up and down,” said Phil Flynn, senior market analyst at Price Futures Group. “They’re putting out some trial balloons to see how their buying is going to impact prices.”
Meanwhile, China is considering exporting more fuel, a move designed to boost the economy but which also raises questions about how much domestic consumption is falling amid Covid-19 lockdowns. The news comes after the International Energy Agency said Wednesday the country will see its biggest drop in demand for oil in more than three decades.
Oil is on course for the first quarterly loss in more than two years as central banks including the Federal Reserve tighten monetary policy to tame inflation, hurting the outlook for energy consumption. The retreat has erased all the gains seen in the wake of Russia’s invasion of Ukraine, with prices earlier this month hitting the lowest since January.
Crude product prices have also declined significantly in the few past days on seasonal demand drops while China prepares to ramp up fuel exports. Diesel’s prompt spread shrank to $2.77, down from $7.45 earlier this month. The diesel crack, which measures diesel futures relative to crude oil contracts, fell to its lowest in over a month.
Diesel Margins Tank as Market Weighs Possible China Exports (2)
Widely watched oil-market time spreads have been volatile. Brent’s prompt spread -- the difference between its two nearest contracts -- was $1.12 a barrel in backwardation. That compared with 90 cents a week ago, while the measure was more than $2 as recently as last month.
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